How to Accelerate Economic Growth and Strengthen the Middle Class in Latin America

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May 2020
De la Cruz, Rafael; Manzano, Osmel; Loterszpil, Mario
The countries of Latin America and the Caribbean (LAC) have made significant economic and social progress in the past two decades but, with the recent slowdown in the global economy, the region’s growth rate began to decline. That circumstance has been compounded by the grave health crisis caused by the Covid-19 pandemic, which has had an extraordinary impact on the region's economies and reminds us how vulnerable the LAC countries are to external shocks.

If LAC makes the right policy decisions, however, the countries of the region could resume the path of economic growth and continue their progress towards becoming developed nations. Investment in infrastructure could be the key to bringing about this transformation. Closing the infrastructure gap that separates the region from developed countries is a precondition for making LAC a high-income region. The main obstacle to achieving this high level of public investment is the LAC countries’ limited fiscal capacity: hence the need to expand fiscal space. There is also a need to raise productivity, and to boost private and public investment in innovation, in the use of new technologies, and in building proficiencies and skills. All of this must be complemented by public policies that foster competitiveness as well as flexible and open markets, in a framework of respect for property rights.

Finally, the extraordinary growth of the middle class in LAC, as well as the decline in poverty levels, poses new challenges for the development of these countries and for public policymaking. Adopting and maintaining a policy of sustained growth with equity is the best response to the new set of demands arising from the recent upward social mobility of broad sectors of the population in Latin America. Social policy should emphasize insurance mechanisms for this new middle class, in terms of pensions and employment. In the coming decades, massive investment will also be needed in education, health care, and improving the quality of public services.

This monograph is one of a series on the Andean countries. The other, individual books on each country offer analyses and proposals for specific policies to accelerate growth and strengthen the middle class in Bolivia, Colombia, Ecuador, and Peru.